Asset managers and asset servicers ramp up back-office investments

With the financial crisis delaying
investments into fund accounting and associated middle- and back-office systems
asset managers and asset servicers are now ramping up spending to improve their
efficiency, accuracy and automation of their systems, according to a whitepaper
from Aite Group.

Of the 37 asset managers and 21 asset servicers interviewed for the study,
which was sponsored by SunGard, approximately a third of the respondents said
that their firms expect to invest in their back-office IT, while a similar
number said they would review their back-office IT investments in the next
three years.

“That’s a fairly positive response that nearly two-thirds of the firms would be
assessing their technology,” said Virginie O’Shea, senior analyst at Aite Group
and co-author of the whitepaper. “Those who said they would not reassess their
technology may have assessed their technology in the last 24 months.”

The firms looking to retire systems are investigating reconciliation
technology, she said. “It would consist of running old and new systems in
parallel while reconciling the older technology with the newer technology.

According to research published by Aite Group earlier in 2014, 59% of the
polled asset managers and asset servicers planned to spend less than US$50
million on IT investments, while 6% planned to spend between US$50-100 million,
4% said US$100-250 million, 2% planned to spend between US$250-500 million, and
6% said more than US$500 million.

Asset servicers had more concerns about costs, as 63% complained about the cost
of maintaining their systems compared to the 22% of asset managers who did so.

The research also brought out other clear investment divides within the buy-side
community for issues such as outsourcing and compliance.

“For those who had outsourced before, they likely would outsource further,”
said O’Shea. “For the firms what decided not to outsource, they thought it
would be better to keep their processes internal.”

There was a high amount of interest to outsource things like transfer agency,
she adds. On the other hand, “areas like over-the-counter valuation, they have
kept internal. These firms also opted to keep their collateral management
in-house.”

When it comes time to invest in compliance, the study found that approximately
half of the firms interviewed invested in projects “to fight various fires,”
while the other half took a more strategic view and focused on data aggregation
and data quality improvements that could be sewn together with compliance
initiatives.

“I’m not sure that this divide is surprising rather than demonstrating the
different approaches firms take to the technology universe,” explianed O’Shea.
“Some have the mentality they can join things together while others prefer to address
things in a more localised manner.”

However, the most common pain point for asset servicers and managers regarded
data aggregation, which firms will make a priority in the next three years,
according to the report’s authors. Some of these projects, said the report, are
improving the responsiveness of a firm’s risk calculations by accessing data
from different parts of the business quicker, while also providing front-office
support for pricing and tracking collateral.